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TMI Blog2011 (10) TMI 717X X X X Extracts X X X X X X X X Extracts X X X X ..... y in liquidation, namely, Elmot Engineering Co. P. Ltd. (in short, company under liquidation ). It is his case that he was elected as director of the company under liquidation in its extraordinary general meeting held on March 3, 1990, in which meeting, 3,498 shares of this company were duly transferred in his favor. He states that he has also a claim of ₹ 2.87 lakhs on account of payment of dues to the employees of the company under liquidation. He claims to be a majority shareholder holding 3,498 out of 6,995 shares in the company in liquidation. It is his case that Elmot group of companies comprised of the company under liquidation along with its sister companies, namely, M/s. Elmot Alternators P. Ltd. (in short EAPL ), M/s. Elmot Direct Current Machines P. Ltd. (in short, EDCM ), M/s. Elmot Electronics P. Ltd. (in short, EEPL ), M/s. Elmot Fabricators P. Ltd. (in short, EFPL ), M/s. R.K Battery Charger Manufacturing Co. P. Ltd. (in short, RKBC ) and M/s. Mechelm Engineers P. Ltd. (in short, MEPL ). The applicant states that after some senior officers left in 1978, Mr. C.V K. Rao, the then managing director of the company under liquidation could not manage the affai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... troduce the applicant to accept the responsibility of revival of the companies. Accordingly, Mr. C.V K. Rao appealed to the applicant to take up the responsibility without informing the applicant about the pending proceedings for winding up of the company under liquidation. The relation between the applicant and Mr. C.V K. Rao is mentioned inasmuch as it is stated that Mr. C.V K. Rao is a son of the only sister of the paternal grandfather of the applicant. 5. After setting out as to how the applicant was elected as a director on the board of the company under liquidation after removal of three directors of M/s. VM Finance Ltd., it is alleged that Mr. C.V K. Rao was to file the necessary forms regarding the applicant's election and appointment. It is alleged that by a letter dated October 1, 1990, the official liquidator was informed that the applicant had been elected as a director on the board of the company under liquidation. It is pointed out as to how the records in relation to the meeting including minutes book, etc., were retained by Mr. C.V K. Rao. It is pointed out that the applicant showed willingness to furnish the statement of affairs. It is stated that the fact t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anies. (v) As per the audited balance-sheet as at April 3, 1985, the negative net worth of the respondent-company was ₹ 29.48 lakhs (i.e., negative book value of ₹ 420 per share which was 4.2 times the nominal value of the share). The negative net worth as at April 3, 1990, would at least be ₹ 90.23 lakhs (i.e., negative book value of not less than ₹ 1,289 per share which is 13 times the nominal value of the share), if interest and depreciation alone are considered for the five years from 1985 to 1990 at the same amount charged to profit and loss account of ₹ 12.15 lakhs per annum on a conservative basis, undisclosed liabilities scared all including those who entered into agreements to buy the companies. The shares of the respondent-company were sold and transferred to Mrs. V. Sharada in 1988 for consideration of ₹ 10 per share. (vi) The share transfer forms 14 (fourteen) duly stamped along with 29 equity share certificates for transfer of 3,498 shares (50 per cent. of equity) to me were signed and submitted by Mr. C.V K. Rao and Mrs. R.K Rao as trustees representing 14 (fourteen) private trusts with the respondent-company. Mr. C.V K. Rao a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled on September 19, 2009, as is stated in the affidavit in support itself. 10. This application is opposed by Mr. A.V K. Rao who claims to be the shareholder of the company under liquidation and the managing director of M/s. Elmot Alternators P. Ltd. It is stated in the affidavit in reply that Mr. A.V K. Rao holds 265 fully paid-up equity shares of the company Under liquidation and that the applicant is falsely claiming to be a shareholder. All shares of the company under liquidation are held by the family members of Mr. A.V K. Rao directly or indirectly. He states that the case of the applicant is totally false, besides arguing that this company application is liable to be dismissed only on the ground that it is barred by the law of limitation. According to Mr. A.V K. Rao, the alleged transfer of shares in favor of the applicant took place on March 3, 1990. The company was ordered to be wound up by an order dated March 22, 1990. This company application is filed on September 25, 2009, which is after 20 years of passing of the winding up order and it is, therefore, time barred and should be dismissed on this ground alone. 11. It is then stated that the alleged transfer in f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on. That claim was disputed by Mr. A.V K. Rao. Mr. A.V K. Rao became aware of the applicant's claim. It was stated that there are false affidavits filed alleging that the parents of Mr. A.V K. Rao transferred these 3,498 equity shares on March 3,1990 and that he is now the owner thereof. However, Mr. C.V K. Rao filed an affidavit dated December 6, 2008, in Company Application No. 212 of 2008 explaining the true and correct facts pertaining to the shareholding. It is stated that the said Company Application No. 212 of 2008 was disposed of on March 13, 2009. It is stated that a suit has been filed in Rangareddy District Court at L.B Nagar, Hyderabad being Suit No. 244 of 2009 by Mr. A.V K. Rao against the applicant herein and others including the parents of Mr. A.V K. Rao for a declaration that he is the sole and absolute owner of 3,498 equity shares in the company under liquidation. The present applicant cannot claim this ownership falsely. It is stated that the applicant is wrongfully in possession of the share certificate pertaining to these shares and the purported transfer of 3,498 shares is without consideration, without execution of valid transfer documents/deeds and witho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licant himself in good faith. I say that my husband and I were residing primarily in Mumbai since marriage in the year 1959 up to the year 1982. After my husband established the company in Hyderabad in the year 1974, my husband and I visited Hyderabad from time to time until the year 1982. I shifted entirely to Hyderabad for six years from 1982 up to 1988, on account of my son's schooling in Hyderabad. In 1988, my husband and I came back to primarily reside in Mumbai, as my son Aakash had completed his schooling and was admitted to junior college in Mumbai. My son Aakash completed his junior college in April, 1990, after which the entire family visited and stayed in Hyderabad during the summer vacations in May/June, 1990. Sometime in June, 1990, we returned to Mumbai as my son Aakash had secured admission at IIT Powai, Mumbai. My husband Mr. C.V K. Rao suffered a heart attack in March, 1991, after which he underwent a bypass surgery on June 15, 1991, at Beach Candy Hospital, Mumbai and was hospitalized for a long time thereafter. After his discharge from the hospital, he was advised complete bed rest for four to six months. I say that except for the period in May/June 1990, I h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on. Attempt is to hold on to these properties. The entire matter is being treated as if it is a personal matter, but that is incorrect because whole attempt is to retain possession of the immovable properties which are very valuable and to appropriate them to Rao group somehow or other. In paragraph 27 of this rejoinder affidavit, this is what is stated : 27: With reference to paragraph 18, I say that all shares in all companies in Elmot group were sold and transferred to VM Finance and Leasing Co., and Suit O.S No. 357 of 1988 was filed by intervener No. 2 for realization of the value of shares. Interveners are deliberately distorting the facts and without producing copies of the suit and judgment thereon before this hon'ble court. I say that the above admitted fact that C.V K. Rao, intervener No. 2 filed the above suit against M/s. VK Finance and Leasing Co., for recovery of sale consideration on sale of the Elmot group conclusively establishes the fact that the Elmot group companies were sold and the shares of the companies including that of EECPL (in liquidation) herein were transferred to M/s. VM Finance and Leasing Co., and/or its proprietress and/or its nominees. I fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I say that the minutes of board meetings in which transfers on similar lines were approved are in possession of the applicant. Hereto annexed and marked at exhibit BB pages 752 to 757 of C.A No. 212 of 2008 are copies of 6 (six) transfer forms submitted by the trusts for transfer of shares in Elmot Direct Current Machines P. Ltd. (EDCM) to intervener No. 1 in July, 1996. It is pertinent to note that C.V K. Rao has signed, as trustee, the transfer forms on behalf of Sivoham Trust, Swoparjitha Trust, Venkata Vishal Trust and Ganesh Prasanna Trust in which C.V K. Rao, intervener No. 2 is not a trustee as per his own admission and admission of Mr. Aakash, intervener No. 1. I without prejudice to the other contentions say that intervener No. 1 has fully accepted my shareholding in EECPL (in liquidation) and had not disputed my shareholding till date. I without prejudice to my other submissions and contentions submit that as the said Mr. Aakash, intervener No. 1 has not produced the trust deeds of the alleged 17 trusts I deny that said Mr. Aakash, intervener No. 1 is the sole beneficiary as otherwise alleged. I say the remaining allegations made therein are vague and devoid of any mater ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e applicant is trying to mislead this court by inconsistent and vague statements. 19. It is on this material that I have heard rival contentions. Mr. Gaurav Joshi, learned counsel appearing for the applicant, submitted that the documents which are annexed to the affidavit in support of this application and that in the compilation, will show that prima facie the applicant has title to the shares. The share certificate is conclusive evidence of this fact and he invites my attention to section 82 of the Companies Act, 1956. Mr. Joshi submits that the legality of transfer need not be gone into in these proceedings. Even the issue of title to the share cannot be raised inasmuch as the application is made on the basis that there is a valid transfer of shares, but since the company is under liquidation and that there is winding up order passed against it, that it is required that this court in terms of section 536(2) of the Companies Act, 1956, should validate and save the same. Mr. Joshi submits that the law is that such transactions are not void, but voidable at the instance of the official liquidator. It is not the case of the official liquidator that this transaction is in any way ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 212 of 2008 in Company Petition No. 645 of 1988 which application was filed by Elmot Alternators P. Ltd. In these circumstances, all arguments to the contrary of the interveners should not be accepted and particularly because after seeking leave of this court under section 446 of the Companies Act, 1956, they have filed civil suit in the District Court at Hyderabad and the subject-matter of the suit cannot be raised here. 22. Mr. Joshi submits that the conduct of the interveners/contesting respondents is contemptuous. Mr. Joshi has invited my attention to several affidavits and it is stated that the false statements are made and the records are being falsified. The story cooked up is not a part of the suit and in any event, no interim orders are obtained by the interveners/contesting respondents in their suit. In these circumstances, the contentions of the interveners should not be accepted. For all these reasons, the company application should be made absolute. 23. Mr. Joshi has relied upon the following decisions in support of the above contentions: (1) [1868] L.R 3 QBD 689 Rudge v. Bowman. (2) [2000] 100 Comp Cas 417 : [2000] 2 SCC 756 Pankaj Mehra v. State of Mahara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ened on March 3, 1990 and there is no further meeting according to the applicant or that there is no other meeting of the said date, then, there is no explanation as to why the minutes reflect two separate meetings. Further, they do not reflect any direct transfer of shares. There is no appointment of the director. It is submitted that this court may rule upon these aspects because the interveners/ contesting respondents will not raise this issue in the pending civil suit. It is submitted that the company under liquidation cannot continue its activities nor can it appoint a director or transfer the shares nor can any effect be given to such actions after March 22, 1990. In these circumstances and when section 287 of the Companies Act, 1956, is clear, this company application deserves to be dismissed. 26. Mr. Mehta has relied upon the following decisions in support of his contentions: (1) [1976] 4 SCC 634 Kerala State Electricity Board v. T.P Kun-haliumma. (2) [2001] 103 Comp Cas 979 (P H) Jagjit Rai Maini v. Punjab Machinery Works P. Ltd.. (3) [2001] 105 Comp Cas 778 (AP) Official liquidator v. Andhra Pradesh State Financial Corporation. (4) [1989] 65 Comp Cas 178 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1) In the case of a voluntary winding up, any transfer of shares in the company, not being a transfer made to or with the sanction of the liquidator, and any alteration in the status of the members of the company, made after the commencement of the winding up, shall be void. (2) In the case of a winding up by or subject to the supervision of the court, any disposition of the property (including actionable claims) of the company, and any transfer of shares in the company or alteration in the status of its members, made after the commencement of the winding up, shall, unless the court otherwise orders, be void. 30. In the case of Pankaj Mehra v. State of Maharashtra reported in [2000] 100 Comp Cas 417 : [2000] 2 SCC 756, it has been held by the honorable Supreme Court that all dispositions of property made by a company during interregnum between the presentation of a petition for winding up and the passing of an order of winding up, cannot be said to be null and void. If such a view is taken, the business of the company would be paralyzed, for the company may have to deal with very many day to day transactions, make payment of salaries to staff and other employees and meet urge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of all shares in the companies of Elmot group so as to give the applicant 50 per cent, equity in all Elmot group companies. It is stated that the share transfer forms 14 duly stamped along with 29 equity share certificates for transfer of 3,498 shares were signed and submitted by Mr. C.V K. Rao and Mrs. R.K Rao as trustees representing 14 private trusts. Yet, it is stated that the original transfer forms and statutory register are in the custody of the company. There are further averments and particularly with regard to redrafting and rewriting of the minutes of the board meeting held on March 3, 1990. 32. In the affidavit in reply of Mr. A.V K. Rao and supporting affidavits, what has been pointed out is that the applicant is in wrongful possession of the share certificate pertaining to these 3,498 shares. The purported transfer of these shares is without consideration, without execution of any valid transfer document/deed and without approval of the board of directors of the company under liquidation. It is consequently invalid. Reliance is placed upon the affidavit executed by this very applicant dated July 29, 1996, in which he has deposed that Mr. A.V K. Rao is the sole be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11. Muktamba Trust 20 15(E) 243 to 262 12. Bhanu Rashmi Trust 20 16(E) 263 to 282 13. Venkata Vishal Trust 20 17(E) 283 to 302 14. Ganesh Prasanna Trust 20 18(E) 303 to 322 15. Aakash Trust 20 19(E) 323 to 342 16. Aakash Rashmi Trust 20 20(E) 343 to 362 17. Rama Krupa Trust 20 21(E) 363 to 382 340 4. That valid applications for transmission of the abovementioned shares to Mr. Aakash Vishalraj Krishnaraj Rao have been received from the above trusts and the applications are being processed for transmission a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recently as on November 6, 2008, although it was objected to the applicant being recognized as a shareholder well before that date. The applicant did not produce any document in support of his claim of being a shareholder of the company under liquidation, in his intervention application being Company Application No. 898 of 2008 for intervention in Company Applications Nos. 212 of 2008 and 1312 of 2007 or in his affidavit dated October 2, 2008, in reply to Company Application No. 212 of 2008. It is alleged that it is only when the rejoinder affidavit was filed by Mr. A.V K. Rao on October 16, 2008, in Company Application No. 212 of 2008, that the copies of share certificates allegedly evidencing that the applicant is a shareholder, were sought to be produced. The minutes of the meeting held on March 3, 1990, are stated to be false and got up documents which were never prepared at that time. The allegation is that the minutes are prepared on pro forma sheet of loose leaf printed by one Law Sales Co. P. Ltd., Hyderabad whose telephone number is shown as 4613894 which is seven digit telephone number. These minutes were prepared on March 3, 1990, or thereafter is false version becaus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assistance of these provisions. Further, Mr. Mehta relied on section 108 of the Companies Act, 1956 and urged that one set of transfer deeds is non existent. He pointed out the discrepancy from the minutes and in that behalf relied upon pages 292, 294 and 296 of the compilation. In these circumstances, he submits that this court will not be in a position to ignore the pleas at page 16 of the affidavit in support of the applicant and particularly under the heading E. Transfer of shares, (vi) . He also relied upon the explanation given for two meetings by the applicant himself at page 17 at heading F(i) . He vehemently argued that the applicant himself states that in order to avoid confusion and doubts likely to be caused in the mind of the prospective lenders, the minutes of the said board meeting held on March 3, 1990, were redrafted and rewritten in line with the recorded entries. He also pointed out paragraph 32 of the rejoinder which has been filed by the applicant and submitted that the applicant accepts the version with regard to the minutes of the board meeting, but argues that considering the relationship with Mr. C.V K. Rao the applicant had accepted the change on terms m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt and the defendant in that suit with regard to theft on July 16, 2001, but there is no allegation with regard to theft of the minutes book. However, the applicant changed his version and then argued that there is theft of the minutes book. Thus, Mr. C.V K. Rao in his affidavit has pointed out as to how the applicant was unable to revive M/s. Elmot Alternators P. Ltd., and betrayed his trust. It is only after return of the son in the year 2002 that the affairs could be brought under control. Mr. C.V K. Rao has stated that there was no meeting of the board held on March 3, 1990, nor was there any transfer of 3,498 equity shares in favor of the applicant. Neither the applicant nor his wife were ever appointed as directors of the company under liquidation at any time. Further, it is apparent as pointed out in the affidavit that even the mother of Mr. A.V K. Rao has not signed on the transfer form. 39. Mr. Joshi, in countering these submissions, argued that all these matters cannot be decided in the present proceedings invoking the court's power under section 536(2) of the Companies Act, 1956. This is a clear case where there is no specific period of limitation provided by la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot be granted any relief in this company application. 42. Once the above view is taken, there is no necessity of referring to all decisions that have been brought to my notice. I am proceeding on the basis that the transfer of shares is a matter which can be dealt with and is covered by section 536(2) of the Companies Act, 1956 and the same principles which apply with regard to the dispositions of property would apply and govern the transfer of shares or alteration in the status of the members. However, finding that the claim is belated, there being unexplained and erroneous delay in raising it, so also, it being highly disputed, that it will not be possible to grant any relief on this application. If the claim was not belated as referred to above, possibly all other aspects could have been gone into and then a view in favor of the applicant on other aspects could have been taken. However, finding that the parties are involved in litigation in relation to the very transaction and that it is not a case of admitted transfer of shares on the own showing and going by own version of the applicant, that the company application fails. It is dismissed. In the circumstances, there wil ..... X X X X Extracts X X X X X X X X Extracts X X X X
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